Good morning, welcome to the presentation of the second quarter for Polygiene Group. I'm Ulrika Björk, I'm the CEO of the company, and I have Niklas Blomstedt, the CFO, who will start to go through the financial figures.
I will start with a brief summary over the second quarter. Sales was below 2022 with 46.5%, including 4% FX impact. We continue to perform with a strong margin, we're ending up with 74.2% versus 66.7%. We have taken down the cost. The external cost is SEK 12.4 versus SEK 13.1, driven by less commission and marketing. The cost for personnel is down SEK 8.2 versus SEK 9 million, due to the saving program started end of last year. Two people have left during the quarter, if you compare Q4, actually it's eight people that have left. EBITDA is minus SEK 1.8 versus SEK 9.6, the cash flow is minus SEK 2.8 million.
If we include the FX, it's -0.5 million SEK versus -0.4 million SEK last year, and we do have a cash of 47.1 million SEK versus 53.6 million SEK last year. Looking on the share of the sales, the Freshness has gone down to 39% versus 47% last year. While the protection, of course, then have increased to 61% versus the 53% they had last year. If we then go into some more details on the sales, if you look on the drop of 46.5%, we need to explain it a little bit more because there's some things that are behind that. If you look on Freshness, they have dropped six and a half million SEK due to the sales to the distributors.
In protection, the drop of is SEK 6 million due to the total manufacturers, and this is more or less the inventory adjustments in the supply chain. If you look on the sales to our customers and to the brands, the drop is around 30% in the quarter, and that is sort of the same signals we get from the market. The overall market is down around 30%. A short summary. As you can see, sales down, the real sales is down 30%, including the supply chain. We've continued to perform with the strong margins. Cost is down 6.4%. I think it's important to say here that we do savings, but we don't wanna do anything that would jeopardize the long-term ambitions.
EBITDA and EBIT is down SEK 1.8 million on EBITDA, and my EBIT is -SEK 5.3 million. Even if we have a negative cash flow, it's also important to see now we have had four quite, I would say, challenging quarters, and we still have a cash of SEK 47.1 million versus SEK 53.6 million same time last year. We are in a strong cash position going into the second half.
Thank you, Niklas. As you can see on the numbers, it has been a challenging quarter for us. Actually, the situation we faced in Q1 has continued into the Q2, so we see a delayed recovery. We see that the entrance of new orders are quite low still. The good thing is that we see that the market, and when I talk about the market, our customers' market, who are selling through their stocks now, they have been increasing. If you look at the, for instance, the big textile brands, and brands for sports, fashion, they actually have a growth in Q2, meaning they are actually selling out from the stocks, and we will come later on with new production.
What we can see and what we hear from the industry is that the recovery we'll see earliest in end of this year, maybe a little bit earlier, but we will say end of this year, we could see that we will be back again at least plus, minus from last year. We also have, as Niklas showed you, we have a stable financial position. We have cost control, continuous looking after cost. We have the strong cash. Also we're operating under these high margins. I think we need to understand that the business is still stable, and we just need to have the top line growth. Everything else is healthy numbers. What we've been working on now during this quarter is the high activity level to create new business and be ready when it turn.
It's not like everything is down. The activity level is higher than ever because we see that we need to create this new business, since our existing customers still need to sell out their stocks. During the quarter, we also signed up two new agents to boost the sales. It's in Spain and in Bangladesh, and the reason why we chose these two regions is, first, we need a Spanish-speaking person for the sports and out in Europe. In Spain, we have an external commission-based agent, so there is no fixed cost involved. They only get commission of the sales. Then we have in Bangladesh, which is the second biggest textile export in the world after China. They are growing down there, and we also think we need to be present there, going to the mills and promote Polygiene's product there.
It's strategic regions, and we think at this point, with the external agents, based on commission, is a good start now, since we are holding back on the personal cost. We also signed a new distributor agreement in El Salvador, which is another area where we have a lot of textile production in the world. This distributor is an old stock holding distributor, but they've never been able to sell. We have an agreement with them that they actually can go out and promote and sell our technologies. They also cover Honduras. Both El Salvador and Honduras is more than 50%, 60% of the gross natural product in these countries is textiles. It's a huge area, and many, many of the American brands, companies are producing down there.
Despite we have cost pressure, we also, we think it's important to not cancel all trade shows and events. This is where we meet the customers. This is when we build the relationships. This is how we keep connected to the industry. Instead of having a big booth ourselves, we make it a little bit smarter to walk the shows and have meetings in the booth of our customers and partners. We still have a presence, but in a much more cost-efficient way. We've been visiting AIX, we've been to the Automotive Interiors Conference, we've been visiting OutDoor by ISPO, et cetera. We still have a foot there, but in a very, very smart, cost-efficient way. Of course, the product development is progressing. It is still high priority for us, so we want to launch new technologies this year.
When that launch comes, we need to be prepared, and we need to have people who can go out and promote these new technologies. I want to go in and comment a little bit about the business happening in the different segments. We have the Freshness and the product protection, and just like a small refresh of what is the Freshness, what do we mean when we talk about Freshness? That is mainly connected to the textiles for preventing odor and keep garments and gear fresh for, or prolonging the lifetime of products. This is the old Polygiene business, you could say. The categories is like sports and outdoor, which still is 60% of the textile category. We have the fashion lifestyle, who is the only category that actually had a growth in Q2, and workwear, home textiles. The margin structure is quite high.
We operate under +80% margin. But that also, this margin makes us to be able to support the brands with the branding, with the marketing support. This side of the business is driven by the brands, and we have direct relationships to the end brand, and we help them sell through. Of course, this model is more intense when it comes to manpower and cost, but the high margin allows that. Going into freshness during Q2, what we have seen globally is that it's the lowest textile production year since 2016. If you look at all textile produced in the world, it's actually the first time it's not growing. As an ingredient brand into new textiles, of course, we will also be decreasing. As Niklas said, we don't see any new orders from the distributors. They are actually decreasing their stocks.
Cash has been expensive nowadays. We can see the pattern that they don't want to order if they don't see the order income in the same pace. The orders has been slower. It's like a double effect there. They are keeping very cautious to take on more stocks. We also see there is the general drop across the regions and the categories. You can see a little bit more of the decrease in Americas this quarter. Also Europe and Asia is also down. As I said, the categories overall is down. Lifestyle is actually growing, driven by PVH, Tommy Hilfiger, mainly. As we said before, we are more or less aligned with the market. When I talk about our market, it's the market for ingredients who goes into chemical ingredients into textile production.
We are aligned. We also spoke to companies who are making zippers and hang tags and buttons for the garment industry. They have the same number during the quarter. It's down 20%-30%. We keep a close dialogue to our customers, and we haven't lost any business. We still know that they are trying to sell from their stocks, and then they will come back. That's what we think. They believe they will be back in the end of this year. Even if we don't do press releases anymore in the same extent like last, like before, we will of course, sign in new partners, and we have new partners launching products with us. For this quarter, we have Saucony, which is the famous running brand. I think you know them, even here in Sweden.
They are promoting us. I saw a post they made where they actually promoting Polygiene and the benefits with the technologies. We have the Sukeno, which is one of Japan's biggest manufacturer, and they are actually producing for other retailers, for other brands, and they are really good at the branding level. As you can see on this picture, they have hang tags, labels, they have transfers, sewing labels to promote the technology. We have a small one. It's quite funny, but it's the Castore. It's a partner of Polygiene, and they are manufacturing clothes for the Formula One teams. What we've been doing is we treated for the Red Bull team and the McLaren team to try out, and they really love the technology.
We got such a good feedback, so they have now decided to incorporate Polygiene into the 2025 years of collection, and that's both for the team and for the merchandising. What you say, you can buy team shirts in the shops. It's quite small, but I think the brand value or the value and the exposure could be quite good when they launch, because Red Bull is Red Bull, and Formula One is also quite popular sports. That's like a small one, but we really good to show the value of the technology. We have a new biking brand from Germany, and it's one of Germany's most premium biking brand. They are manufacturing hard goods, so it's mainly bikes, but they also have a collection of clothes, and we are incorporated into that collection.
It's a premium brand, so it's a good door opener for other biking brands in the future. That was just a couple of the new brands we took on board. If we go to the product protection side, it's a completely different business. It's mainly B2B. It's connected to hard surfaces and all other non-textile surfaces and materials. The categories are water, paint, packaging, industrial, healthcare, hospitality, transport, so it's quite different from the textile side. The margin structure is lower, but on the other hand, even if they co-brand, it's not so marketing heavy as on the Polygiene side because it's not the same setup with building green brand and to support with all these hang tags and labels and POS material, consumer material. It's a different business model, and it's more tech-driven.
They can do bespoke formulations if there is a customer who want to have a tailor-made solution, that is what Addmaster is doing. Often the customer is another manufacturer or compounder who is selling to end brands. There is, like, one part in the middle, also selling a lot through distributors. It's a lean and very efficient business model. As I said, it's completely different from the textile side, and sometimes when during the integration process, we found out that sometimes it's hard to take the middle way to compensate too much, so this is something we are looking into. Small update on the protection side during the quarter. We have NIO, the Chinese electric car brand, and they are continuing to grow with us, slowly but steady.
Just to show you an example why the lead times are so long, they first started with one model, and they wanted to try it out and see if it was something that was demanded. Now they can see, and they actually can prove, that people are appreciating hygienic cars. There is a trend for sharing cars. It's a trend for hygienic, it's a trend for be aware of bacterias and viruses post-pandemic, there is a big demand for this. Now they decided to go with all new models, and before they only did the PU leather, but now they also tried the real leather and actually works perfect. We think they will go with all models on both PU leather seats and the real leather seats. NIO is a small brand. It's premium, but it's quite small.
Imagine they are doing 100 millions of car every year in the world globally. If we only can take, like, 1% or 5% of that business, it's quite a big potential in this sector. We have a very good case study now from NIO, and we will go out and promote this. The manufacturer of NIO, they actually like the technology so much, so they are already promoting it to other brands, and we now got information that there's another Chinese brand that will jump onto this technology. Slowly but steady, and I often got questions, how much does it mean for Polygiene to be in the seats, to have the steering wheels, the panels? What is it in turnover? As you know, Addmaster don't have this licensing model that you charge per piece.
It's more like you're selling the chemical in kilos, so we only need to calculate backwards how many kilos to treat all this. We, we try to do an estimation, what does it mean for one car? We will say between $1 to $1.3 per car. That is approximately what we believe is the use cost for getting to the car. We were invited to present to the importance of the hygiene and the Automotive Interiors Expo in Germany, and we presented the offer of BioMaster and the importance of hygienic surfaces in automotives. That was really interesting because we had a presentation, and there were so many questions after, so it was like a line, and we got a lot of connection, and now it's the follow-up meetings, and there were many, many prominent brands among those who are interested.
We have NDAs, of course, we can't speak about specific brands, but I would say that we had very interesting discussions with many of the big brands, the volume brands. Let's hope for that for the future. Last time, I also presented the other technologies that Addmaster holds in the portfolio that we haven't been talking so much about. I introduce you to the geotextiles that Polygiene Addmaster has a great technology for this area. We are under a negotiation with a partner, potential partner, long term. Let's see when we can go back to inform you more about that. As same with Polygiene, we are not, like, press releasing, so we wanted to keep this new partners or success cases to the webinars.
Aside from NIO, we also have Marks and Spencer, who's doing this shopping bag, and this is the latest version. It's felt, so it's not fabric, it's more another material. This one, we call it Bag for Life. It's actually a patent we have with these bags, and I think it's something we should spread around the world with this bag, because not to use single-use plastic bags. We should use this one, and they are treated with antimicrobial on the inside, which is great. We also signed up with FAIGEL, which is a company who are producing these hang straps for trains and buses and trams, and now we know we have an order for the Hong Kong Metro. This metros in Hong Kong, we will go with BioMaster inside of these.
That's also a perfect spot where you can trust a lot of bacteria and where our technology makes sense. Also we have the collaboration with manufacturing who's producing for Brett Martin, it's a clean cladding is a clad that or walls. You can say, it's these white walls you see behind on hospitals and in schools and public areas where you have a lot of people, where you want to keep hygienic and less bacteria around. This collaboration is new, I think it could grow and be potentially a big customer for us. Moving forward, the focus areas at now it is that I'm quite confident that the recovery will come end of the year.
What we see the signals, what the market says, the dialogue with our customers, I think we will see a bounce back to the levels of 2022 already in the end of the year. We will also present a revised long-term plan later this year. We have lost two years now from the original plan. Of course, we need to revise it and communicate with you when we know the new new numbers. We go into the budgets after summer. In September, we will start to present the budget for 2024 internally. Then we can build the long-term business plan after that. Of course, continuous cost control, monitor the cash flow is super important nowadays. You don't want to run out of cash in these days when it's so expensive. Also to only focus on the top-line increase.
That is, like, the highest priority we have. That is also why we go in to evaluate now how the full commercial structure is set up. Are we set up in the absolutely best ways? There are so many verticals now and dimensions. We have regions, we have segments, we have categories, we have textiles, we have hard surfaces. We need to just evaluate that we have the best business model in the company. Then, of course, as I said before, intensive work with the new product development, because that is also key for a potential big growth in the future. Just to repeat from last time, the investment case, we still have a scalable model. As I showed you, on these low levels, we still almost break even on the EBITDA, and that is a strength.
When the sales come, it will be really, really scalable. Still asset light, we don't have a production still, we don't have it tied up a lot of assets in technologies. We are very flexible on the products. High margins enables that we have this profitable business. Cash flow, almost positive, if you include the FX effect. We are monitoring that really, really hard to limit financial risk. Still, we are debt-free, so we don't have any debts, and that's also something that make us a very, very strong position. Cash in the bank, like we said, we have 47 million SEK in the bank, and that's also good to have. Facing these quarters on these low levels, we can still keep the strong position in the balance sheet. Again, that we are an established business.
We have recurring customers, we have these relationships. Now we see a downturn in the, I mean, this is a lot of external pressure on us. I think when it turns, we will be back again. Thank you. I think we go to the Q&A. I think we got a lot of questions. What do you say?
We can start with the ones that we got in prior to the meeting. We got some here during the meeting as well. Someone, one is about how we look at the long-term targets today. I think we touched upon it, that we said we're going to do a presentation on the new plan end of the year, maybe we can think we answered that already. Concerning cost cutting and the new initiatives that we haven't implemented yet?
We're constantly updating and checking, but as we said, we can't just cut costs now short term because it will hit us long term. We have such a good competence in the organization, and we don't want to cut costs more on the staff side. Of course, if we need to, we have to. We need to get a positive results. We need to get a positive EBITDA. We're doing everything we can, and we're always cautious. We cut a lot of nice to haves just to focus on the goods.
High inventory has been a challenge for a couple of quarters. I see anything pointing more to actual orders coming in? I think we touched on that.
I touched on that as well.
Yeah, yeah. New collaboration, we already touched upon. Why we're not increasing sales with two-digit numbers? Yeah.
Yeah
The whole market is going off for about 20%-30% right now. We are following the market, but hopefully, when the market sort of stabilize.
It is still post-pandemic consequences for the stock building.
Mm-hmm.
out in the, in the value chain. We also have the war and increased prices. We have the consumers with less buying power, so that's why our partners are decreasing. It is a lot of parameters.
Mm.
Why we are not selling with, growth of double digits at the moment.
Any updates on the silver?
I think they refer to the silver legislation?
Yes, I would guess so.
There's no update, since it's like what we said before, it's three, four years down the line before they will have a decision made, so there's nothing happening there. Of course, we will be working really hard to get a non-silver biocide out as soon as possible, because we want to have both in our portfolio.
Yeah.
No news. No new regulatory news.
Yeah. Then we have a question on NIO, but I think we touched upon that.
Yeah, I tried to.
Yeah
talk about Neo, yeah.
Now I have some questions that come in during the webinar. The first one is about, "How can we explain the negative sales you have reported in the global segment?" I think what we said already in the last quarter report, that we changed the way we're reporting the global one and the distributors. Before, we did the allocation at once. When we had the sales, we tried to allocate that to the different regions, we realized it started to get quite messy doing that. Now we do sort of when we sell to distributor, we sales put that on global, when the sales actually goes to an actual brand, then we can say that the sales been down to the brand. We do the allocation at that time instead.
That way it can be both minus and positive. By that, we can also then see how much impact all the sales the distributors have when we compare different quarters. It's a way of being more visible with sort of the actual sales to the brands and the sales to the distributors, which are more like an inventory sale.
If you go back before, we always shipped out more than they allocated, but now since the distributor don't buy in the same pace, that's why you see the minus. If we have sold SEK 3 million more to China distributor, you will have a zero there. It's because they are ordering less, and the stock levels they have now compared to 1 year ago, it's much lower, so the security stock is lower.
Yeah. We got question, how sure we are about the outbreak through on the low levels of sales? I think we touched upon that, saying that we do get signals that the recovery looks like it's gonna be end of the year.
Yeah, end of the year.
Yeah
... is, I'm quite confident that we will see a turn.
Transportation segment, we're positive about it, still we look on a decline quarter-to-quarter. What is causing that rift?
In transport-
Yeah
generally or in protection?
I think it's protection, yeah. It's the.
Protection.
Yeah, transport segment within protection.
It's because I said it's slow but steady, and the volumes are quite small because it's still, we have only Neo and a couple of other ones, and they are quite small in volumes. And that's why you can't see, like, a huge effect yet, but the good is that they are positive, and they are increasing, so we see there is a value. That's why I'm very positive about this area, but of course, it will be, I mean, it's small volume still.
Yeah. The car segment have long lead times. It takes time.
Yeah.
Yeah. Saucony deal. Is that for clothes or shoes?
It's for clothes.
Yeah.
It's for the running collections.
Any chance on them taking it on for the shoes as well?
Hopefully. We are of course working on that and try to penetrate the customers we have to go broader with us, but for now, it's the running collections. Clothing.
Yeah. Good job.
Any other questions?
No. No questions at this time.
Okay.
I think we are done.
We are done.
Yeah.
wish you a great summer, and we see you again in October 26th, I think is the next report. Thank you for listening, and have a great summer!